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Fed Policy-Makers Express Optimism

August 15, 2002

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WASHINGTON (AP) _ Federal Reserve policy-makers expressed optimism about the economy’s recovery two months ago despite the accounting scandals that have eroded public confidence, according to minutes of the June meeting released Thursday.

Although Americans’ confidence ``had been shaken by revelations of accounting irregularities, the economy had continued to expand and the prospects for accelerating aggregate demand remained positive,″ the minutes of the June 25-26 meeting said.

At that meeting, Federal Reserve Chairman Alan Greenspan and colleagues on the Federal Open Market Committee colleagues decided to hold interest rates steady. ``Members saw favorable prospects for a significant acceleration″ in the recovery, the minutes said.

Still, looking ahead, the ``timing and the strength of an upturn in the expansion remained subject to considerable uncertainty,″ the minutes said. Some members said they had expected to see ``firmer indications of a strengthening recovery″ by the June meeting.

By the Fed’s following meeting, which took place on Tuesday, policy-makers concluded that the stock market turmoil and the business scandals were hampering the economy’s recovery. Although they decided to leave rates unchanged again, they opened the door to future cuts.

The Fed, at this meeting, appeared to have more questions about the recovery’s prospects than in June, saying that the greatest risk ahead is further economic slowing. That was a change from its stance in June, which said that risks were equally balanced between inflation and possible weak growth.

The federal funds rate, the interest that banks charge each other on overnight loans, remained at 1.75 percent, a 41-year low.

Minutes of that meeting will be released in September.

At the June meeting, some members indicated that low interest rates over time might conflict with the Fed’s inflation-fighting mission. ``In current circumstances, there was little risk of triggering an increase in inflation by waiting for a better reading on the course of the economy,″ the minutes said.

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Federal Reserve: http://www.federalreserve.gov

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